Loan officer answers first-time home buyer questions (Podcast)

Get answers to your first-time home buyer questions

Buying your first home can feel complicated — especially with so much money on the line.

How much can you afford? Can you even qualify? What interest rate will you pay? The questions are endless.

Fortunately, mortgage advisor Ivan Simental covered these queries and more in a recent episode of The Mortgage Reports Podcast.

Are you planning to buy your first home soon? Here’s what you should know to get started.

Listen to Ivan on The Mortgage Reports Podcast!

1. How much mortgage can I afford?

Lenders determine how much mortgage you can get by analyzing a few factors, including:

• Your income
• Your debts
• Your credit score and credit history
• Your down payment amount
• Current mortgage rates

Once a loan officer has looked at these items, they’ll preapprove you for a loan amount — the maximum amount you can afford based on your financial picture.

Simental has a warning, though: “Just because you can afford a certain mortgage amount doesn’t mean that’s what’s in your best interest.”

Your best bet is to tell your loan officer what monthly payment you’re looking to stay under. They can then approve you for an appropriate loan amount in light of that number.

If you want to estimate your home buying budget before talking to a loan officer, you can use a home affordability calculator. Just remember that calculators offer a rough estimate only. Your actual budget will likely look different depending on current interest rates and your personal finances.

Your mortgage lender will have the final say on how much house you can afford to buy.

2. What do I need to qualify for a home loan?

In order to qualify for a mortgage loan, you need to have a sufficient credit score, reliable income and employment, and enough savings to cover the minimum down payment and closing costs for your loan type. Your loan officer will verify all this during the mortgage application process.

First, you’ll agree to a credit check. You will then need to submit a number of financial documents to qualify.

These include:

• Your last two years’ W2s
• Your last two tax returns
• Two months of bank statements
• Last month’s worth of pay stubs
• Your ID
• Your Social Security number

As Simental explains, “This will allow us to see exactly what your income is, what you claimed, what you deducted, and give us a detailed look into your finances on top of that.”

3. What is my interest rate?

Your interest rate is going to depend on a number of factors. Your credit score plays a role, as does your mortgage loan type, which you’ll choose based on your individual goals as a buyer.

An adjustable-rate loan, for example, may be best if you only plan to live in the home for a couple of years, as these come with much lower interest rates upfront.

If you’re buying a ‘forever home,’ on the other hand, a fixed-rate loan may be better. In both cases, you can also use points to lower or increase your rate (more on this below).

Generally speaking, your loan officer will ask you questions about your budget and goals, and then recommend the best-fitting loan product for those goals. At that point, they’ll be able to give you a better idea of what your interest rate may look like.

4. What are mortgage points?

Mortgage points (also called ‘discount points’) allow you to “buy” a lower interest rate.

“Think about points as a percentage of the loan amount,” Simental says. “So, for example, say your interest rate is at 3.5%. In order to lower it, let’s say a quarter, it’s going to cost you 1% — or one point — of the loan amount.”

Points are most often used to get a lower interest rate. But in some cases, you might want a higher rate and lower upfront costs. In this arrangement, you’d receive the cash value of your points in exchange for a higher interest rate. You could then use the cash to cover your closing costs and other upfront expenses of buying a home.

“It goes both ways,” Simental says. “You can buy down your interest rate, or you can get a higher interest rate to receive money back.”

5. Will I have to pay closing costs?

Every home purchase will have closing costs. These cover things like transfer taxes, title insurance, origination fees, appraisals, and more. In some cases, though, you may not need to pay them upfront — or even yourself.

“There are options for [your closing costs] to not come out of pocket,” Simental says.

One route is to take a slightly higher rate and receive a lender credit toward your closing costs. Another is to get a seller credit, which allows the seller to pay a portion of your costs.

Finally, you can also look into a closing cost grant or assistance program. These are usually offered by your state or county/municipality and are reserved for lower- to moderate-income buyers.

6. How long will this process take?

In most cases, it takes anywhere from 15 to 60 days to close on a mortgage loan, though this depends on the exact bank or lender you’re using.

Looking for something faster?

“My recommendation would be to have your loan officer do a fully underwritten approval,” Simental says. “Once you submit all of your documents, they send it to underwriting, and underwriting will then determine if your income, credit, and assets look good. You’ll then be good to go; the only thing that will be needed is a property to underwrite.”

These kinds of approvals allow the mortgage process to move much faster once you do find a property. It can also give you more confidence in your budget and give you a competitive edge over other buyers.

Fully underwritten approvals take about 10 to 15 days to close, Simental says.

Have more questions?

If you have more questions, reach out to your loan officer for guidance. They can help determine the best path forward for your goals and budget.